This is not the way to run an economy

[Low interest rates] has been a key element in the equity bull market, allowing quality companies to borrow billions for next to nothing, which they can return to shareholders as dividends or share repurchases, or use to make mega-acquisitions. Think Verizon Communications' (ticker: VZ) recent purchase of Vodafone s' (VOD) stake in Verizon Wireless, which was funded in part by the biggest U.S. corporate bond offering ever last year, totaling some $49 billion.

To be sure, financial engineering abetted by the Fed's QE also has had real effects. Steven Ricchiuto, Mizuho Securities U.S. chief economist, notes that the central bank's actions allowed auto makers to resume offering cut-rate car loans, which has boosted auto demand to precrisis levels. Institutional investors' access to inexpensive debt helped them scoop up large numbers of single-family homes to rent out, while individuals with top credit scores could avail themselves of record-low mortgages rates, helping to clear the housing market. (Barron's)

My thoughts? It cannot end well. Too many distortions. The pricing mechanism has been distorted in a crazy way.

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

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1 comment:

Kinder said...

Big investors use many tools to influence the economy when aiming to get more profit. This is not good for the economy as inflation may rice, social interests are not considered, and honest competition is not observed. Banks provide many services like mortgages, payday loans, student loans which involve society into the debt. And this is not good.